Macy's, Rite-Aid on Ropes: Analyst's Toolkit
CINCINNATI (
) -- Retailers resemble zombies after the longest recession since the 1930s.
Macy's
(M) - Get Report
and
Rite-Aid
(RAD) - Get Report
are struggling to stay solvent, while others have suffered revenue declines for several quarters in a row. Separating stores that are doing swimmingly from those merely treading water can be a tough task. The time between retailers' reporting periods seems like an eternity when making investing decisions due to stale sales data.
To remedy that problem, look at same-store sales to bridge the gap.
Same-store sales is an industry standard comparing sales over a specific period, usually a month, from those a year earlier. Excluded are sales in stores that weren't open during the previous period. Straight sales numbers can be skewed by store openings or closures.
Same-store sales, or "comps," are reported by the company, so the figures don't require calculations. The numbers are presented as percentage changes. The higher the number, the better. Most retailers release monthly figures, though others, such as
Sears
(SHLD)
, have moved to quarterly reporting.
Trends over the past year have been ugly for most large retailers. Macy's, for instance, has been limping, with 10 months of 5% or larger decreases in comps. That dismal performance has led to short interest in the stock of nearly 10%, indicating investors are expecting a big pullback in the share price, which has mysteriously beaten the S&P 500 over the past year by almost 5 percentage points.
JCPenney
(JCP) - Get Report
has seen a similarly dismal trend, with negative comps stretching all the way to November 2007. While department stores are looking a bit haggard,
Kohl's
(KSS) - Get Report
is actually one of the stronger retailers in terms of comps. With an increase of 0.2% in August, it's one of the only monthly reporting retailers to show a gain.
Target
(TGT) - Get Report
is also looking strong, with numbers that are far less negative than other retailers and 0.3% growth in April, during the depth of the crisis.
Expect comps to jump soon as current periods will be measured against post-Lehman meltdown numbers. When looking at retailers, include comps in the analysis. Those numbers can provide more timely statistics that should lead to better, more forward-looking decisions.
-- Reported by David MacDougall in Boston.
Prior to joining TheStreet.com Ratings, David MacDougall was an analyst at Cambridge Associates, an investment consulting firm, where he worked with private equity and venture capital funds. He graduated cum laude from Northeastern University with a bachelor's degree in finance and is a Level III CFA candidate.
